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Policy Experiment of Transboundary Watershed Management of the Xin

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Policy Experiment of Transboundary Watershed Management of the Xin Case studies on Remuneration of Positive Externalities (RPE)/ Payments for Environmental Services (PES) Prepared for the Multi-stakeholder dialogue 12-13 September 2013 FAO, Rome www.fao.org As part of the efforts of China Policy Experiment of Trans-boundary Watershed to establish eco-compensation mechanisms at multiple scales, Management of the Xin’an River in China the pilot project of Compensation for Water Environment of the Xin’an River has set a good example Overview of reaching an agreement between downstream and China’s astonishing economic growth in the past three decades has come with heavy upstream provinces by means environmental cost. Taking water environment as an example, over 40% of its rivers are seriously polluted and 80% of its lakes are suffering from eutrophication [1]. In of negotiations and using a addition to the conventional countermeasures of enacting environmental protection carrot-and-stick mechanism to laws and levying pollution discharge fees, China has been exploring innovative policy ensure the conditionality of the instruments to tackle with its environmental problems. In recent years, most payment scheme. attention and efforts have been focusing on the policy instrument of Ecological Compensation (eco-compensation), the Chinese version of Payment for Environmental Services (PES) which compensates people for protecting the natural environment. Since the late 1990s, the Chinese central government has launched some of the largest environmental services payments schemes in the world such as the national-scale Sloping Land Conversion Program (also known as Grain to Green Program) which compensates rural households for converting sloping croplands into forests or grasslands to reduce soil erosion in the upstream regions of the Yangtze and Yellow River [2]. Encouraged by the central government’s promotion of establishing eco- compensation mechanisms at multiple scales around the country and urged by the local needs for securing the provision of clean water against deteriorating environment, some local-scale payment schemes for watershed services have also been implemented by individual provinces [2]. However, compensation for trans- provincial watershed management has long been a difficult issue because of the disputes and poor coordination between the upstream and downstream provinces. Besides, similar to many PES programs in other countries, the existing eco- compensation schemes in China often suffer from a lack of conditionality (i.e. providers of environmental services can receive payments if and only if they secure the provision of the service) due to loose monitoring and weak sanction for failing in providing the contracted services [3, 4]. The pilot project of Compensation for Water Environment of the Xin’an River is a breakthrough in China’s policy experiment in trans-provincial watershed management. Under the mediation of the Chinese central government, the upstream Anhui Province and downstream Zhejiang Province reached an agreement by means of negotiations. Using a “carrot and stick” payment scheme based on a clearly defined water quality baseline, this project integrates the principles of “Beneficiary Pays” and “Polluter Pays” to ensure the conditionality of the payment. Direct assessment of the water quality not only enhances the effectiveness of this project, but also gives the downstream province the important flexibility to adopt both conservation practices and pollution abatement technologies to achieve the project’s target. So far, the total funds of this pilot project have amounted to US$120 million [5]. Background The Xin’an River originates from the prefecture of Huangshan City (green bubble in Figure 1) in Anhui Province and flows 359 km with a catchment of 11,674 km2 into the Qiandao Lake (blue bubble), which covers 573 km2 and is a vital drinking water source of Zhejiang Province, particularly the provincial capital, Hangzhou City (red bubble) in Eastern China [2]. As two thirds of the Xin’an River and over a half of the river catchment is in Anhui Province, the river runoff accounts for over 60% of the total water inflow of the Qiandao Lake [6]. Therefore, watershed management in the upstream Anhui Province is crucial to the water quality of the Qiandao Lake, and consequently to the drinking water security of the downstream Zhejiang Province. It has been more than a decade for an agreement reached by the two provinces on a trans-provincial payment scheme for watershed management. After the first outbreak of blue algae in part of the Qiandao Lake in 1998, representatives of the Zhejiang Province submitted a proposal during the National People’s Congress (NPC), the highest legislative body in China, in 1999, asking the upstream Anhui 1. Liu, J. G.; Yang, W., Water Province to better clean floating rubbish in the Xin’an River. But in the next year’s Sustainability for China and Beyond. NPC, representatives of Anhui Province suggested that water pollution control of Science, 2012, 337 (6095), 649-650 the Xin’an River should be included in the central government’s total plan, which 2. Zheng H. X.; Zhang L. B., Chinese implied a request for financial support from the central government. Later in 2001, Practices of Ecological Compensation the former National Environmental Protection Bureau (which was upgraded to the and Payments for Ecological and Ministry of Environmental Protection in 2008) organized the first coordination Environmental Services and its meeting between the two provinces, but no progress was made [7]. Policies in River Basins, Major Reports Related to China AAA Project by World Bank, 2006, http://siteresources.worldbank.org/I NTEAPREGTOPENVIRONMENT/Resour ces/ReportPESreviewChinesepractice CAASFinalENFINAL.pdf 3. Bennett M. T., Markets for ecosystem services in China: An exploration of China’s “Eco-compensation” and other market-based environmental policies. Forest Trends 2009, http://www.forest- trends.org/documents/files/doc_231 7.pdf 4. Wunder, S.; Engel, S.; et al. Taking stock: A comparative analysis of payments for environmental services programs in developed and developing countries. Ecological Economics, 2008, 65 (4), 834-852 5. Official website of the Ministry of Finance of P.R. China, The pilot project of Ecological Compensation of the Xin’an River is in smooth implementation. 2013, http://www.mof.gov.cn/xinwenlianb o/anhuicaizhengxinxilianbo/201303/t 20130328_795242.html (in Chinese) 6. Lei Z.; Chun G., China's first policy Figure 1 The Xin’an River and Qiandao Lake in Eastern China experiment on trans-provincial (adapted from Googole Maps) Ecological Compensation started operation (in Chinese). People's Daily. 2012, http://env.people.com.cn/GB/172594 06.html 7. He H. F., Investigation on the trans- provincial Ecological Compensation of the Xin’an River Basin. Decision Making July 2012, 50-52 (in Chinese) 2 Rationale The economic disparity between the two provinces has been substantial. The GDP per capita of Huangshan City in the Anhui Province (where most people in the upstream region live) is less than one third of the level of Hangzhou City (the provincial capital city of the downstream Zhejiang Province, relying on the Qiandao Lake as the main source of water supply). The annual personal income of residents in Huangshan City is only about half of the income level of the residents in Hangzhou City [7]. Therefore, people in Anhui Province have strong desire to improve their livelihoods through economic growth. They felt that it was unfair to expect them to assume the costs and accept the forgone economic opportunities of protecting the river while the more affluent people in the downstream province would enjoy the fruits of their efforts to improve watershed services. However, people in Zhejiang Province argued that they already handed over US$16 billion (about half of the province’s total revenue) to the central government each year, so it should be the central government who compensate Anhui Province for watershed management [3]. From an institutional point of view, although there had been some local compensation schemes for water protection within Zhejiang Province, inter- provincial payment mechanism did not exist at that time in China. With the growing pollution threat to the Xin’an River and the Qiandao Lake, there was a urgent need for an innovative policy instrument for protecting trans-provincial rivers. This attracted considerable attention by the central government, particularly during 2005- 2007 when a member of the NPC’s Environment and Resources Committee member consecutively submitted the proposal of designating the Xin’an River Basin as a national demonstration region for trans-provincial watershed management scheme in which the downstream province could have clean river water while the upstream province could receive reasonable compensation for its economic loss for protecting the river. With the significant progress on the design and implementation of eco-compensation schemes around in China, in 2007, the Ministry of Finance and the former National Environmental Protection Bureau jointly announced the Xin’an River Basin as the demonstration region for the first pilot project of ecological compensation for trans-provincial watershed management in the country. However, the two provinces were still far from reaching an agreement. The downstream Zhejiang Province insisted that it had no obligation to compensate the upstream province if the river’s water quality could not be guaranteed, while the upstream Anhui Province demanded
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